New Bill Creates Tax Credits for Private School Scholarships, Starting 2026

The "Educational Choice for Children Act of 2025" introduces a federal tax credit for individuals and corporations who donate to organizations that provide private school scholarships. The goal is to give families more options for K-12 education, especially those who might not be able to afford private school otherwise.

Cash for Classrooms

This bill lets you write off donations to approved scholarship-granting organizations (SGOs). For individuals, the credit is capped at the greater of 10% of your adjusted gross income or $5,000 (SEC. 2). For corporations, it's up to 5% of taxable income (SEC. 2). So, if you're an individual making $60,000 a year, you could donate up to $6,000 and get a tax credit for the full $5,000. A company with $1 million in taxable income could donate $50,000 and get a credit for that amount. These SGOs then use that money to provide scholarships for eligible students to attend private schools. To be eligible, a student's family income must be no more than 300% of the area's median income (SEC. 2). The scholarships can cover tuition, curriculum, books, online learning, tutoring, and even educational therapies (SEC. 2).

Show Me the Money

There's a $10 billion annual cap on the total amount of tax credits available nationwide (SEC. 3). Ten percent of this cap is divided equally among the states. The rest is allocated on a first-come, first-served basis, based on when you make the donation (SEC. 3). If you donate in December, you might be out of luck. The Secretary of Education will set up a real-time system to track donations (SEC. 3), and if 90% or more of the cap is used in a year, the cap increases by 5% the next year (SEC. 3). Scholarship amounts are also tax-free for the students receiving them (SEC. 4).

Hands Off My School

This bill emphasizes that the government can't control how SGOs or private schools operate (SEC. 5). This includes religious schools, meaning your scholarship can be used at a religious institution without the government interfering in their curriculum or practices (SEC. 5). The bill also requires SGOs to meet certain requirements, such as distributing at least 100% of their receipts (minus reasonable administrative costs) and having annual audits by an independent CPA (SEC. 2). Parents also have the right to intervene in court cases to defend this law (SEC. 5).

Real-World Ripple Effects

While the bill aims to expand educational options, there are a few things to consider. The first-come, first-served nature of the tax credits could mean those who donate earlier in the year have a better chance of getting the credit. Also, because SGOs must distribute nearly all of their receipts, there is a risk of fraud and misuse of funds. The requirements for SGOs are designed to prevent this, but it is a potential issue. The bill also raises a question about the impact on public school funding. While it doesn't directly cut public school funding, it could lead to fewer resources for public schools if more families opt for private education. The bill will go into effect for tax years ending after December 31, 2025 (SEC. 2).